According to reports, the Philippines is currently suffering its first recession after 29 years. In a report by Reuters, the country’s gross domestic product suffered its biggest slump since 1981 at 16.5% in April and June of this year. Although a lot of government efforts are implemented to alleviate Filipinos from poverty, there is a lot more we can do to prepare for the worst impacts of the economic downturn.
Managing your finances right and avoiding these money mistakes can make a recession an easier course to defeat:
1. Stopping all your investments
A lot of people panic about their money being invested in many forms. Those whose cash is stored in banks begin to withdraw everything only to be saved in their wallets at home. Those who pay for their health and life insurance suddenly miss the payments and hoard their money instead.
According to experts, halting investment contributions can do more harm than good. If you withdraw your savings from the bank, the money will no longer earn interest no matter how little. What you can do is to review all your investments and diversify those which you think pose many risks for your hard-earned money.
2. Rushing to pay off all debts
Paying your debt in times of crisis may not seem to be a very good idea. The Bayanihan 2 was recently signed to provide debt relief to borrowers amid the loss of jobs. Paying your debt can be good to your credit profile but rushing them to be settled may not be wise. Instead of using the money to pay fixed interest loans, you can use your extra cash to start a business venture. You can also check out other forms of investments like buying a property or commodity.
3. Not having an emergency fund
One of the most difficult realizations Filipinos had during the pandemic is the importance of having an emergency fund. Most households depend on their salaries and when companies start to close, they no longer have money to sustain their needs. Financial advisers recommend having at least three to six months’ worth of living expenses to be set aside as an emergency fund. That means if you are spending Php30,000 a month for rent, bills, and food, then you should have already saved Php90,000 to Php180,000 to cover unexpected situations.
4. Adding up additional expenses
Getting new subscriptions, upgrading your internet connection, and using more gadgets and appliances at home when everyone’s finding means to survive is not a wise move. Controlling how much you spend each month can keep you stay afloat in times of uncertainties. Large auto loan payments or hefty rents can take a toll on your budget and may ruin your finances in the long run. Keep your fixed costs low and make sure you pay your bills on time to avoid racking up debts and payables. Mismanagement of payments usually leads to unplanned borrowings with high-interest rates.
5. Borrowing money as much as you can
There is nothing wrong with using your credit card balances or applying for personal loans if you’re doing it out of necessity. However, if you’re borrowing for an unplanned expense, then the costs of the loan might drain your wallets.
In these times of crisis, there will be a lot of opportunities for you to get money and the most practical response is to think twice and plan out your spending. Go over fees, interest rates, and processing costs. Weigh down the pros and cons and make sure you will benefit from the amount loaned.
6. Not having a back-up plan
Pinoys are very much fun of the “balaha na” mentality which reveals how they are facing each day without a backup plan. Most people suffer the consequences of the recession too badly because they do not have a backup plan for unforeseen circumstances. Being prepared for crises and emergencies does not only mean having enough money to survive. It also means knowing what to do next and how to realize your plans.
If your company suddenly declares bankruptcy due to the pandemic, what’s your next step? Will you be looking for a job? Will you start your own business? Or will you be heading back to your home town and leave the city life?
7. Depending on a single source of income
Recession is an economic decline that is temporary but which may have adverse impacts on those without plans and flexibility to adapt. If you are lucky enough to have retained your job even after six months of community quarantine, then it is not the time to relax. Relying on your job alone for income may not be beneficial for you. Look for other ways to earn more. Search for opportunities wherein you can use your other skills and talents without sacrificing your time for your main source of income.
Avoiding the mistakes mentioned above can help recession-proof your finances. It is hard to predict what will happen next but planning your next move can also alleviate the impacts of the economic decline. No matter how critical the economic challenge you will be facing, you can overcome it when your financial portfolio is secured and healthy.